How do I use system trading to make a living? How do I trade stocks?

Well I have been trading this way for nearly two decades and I am going to tell you what you need.

WHAT YOU NEED TO MAKE MONEY IN THE STOCK MARKET

1) First of all you need a good trading system. I am actually a lousy trader, but I know how to follow a trading system. Love your trading system because not only can it make you money, but it can also relieve you of a lot of stress. Stress comes from decision overload and a trading system removes the necessity of you making many trading decisions.

2) Secondly you probably need two computers (one to watch markets on and the other to place orders with your broker), a large coffee pot, a comfortable chair and a place to rest your feet as well as patience, a good sense of humor AND a night job.

Well if you live on the West Coast where I do an afternoon job will do. But the markets are open for six and a half hours per day (that is 6:30 AM to 1:00 PM for me) and during that time you need to be in front of your computers. You should like to watch markets and perhaps even be entertained by watching markets.

If you are independently wealthy you can forget about the night job, but the point I am making is that if you want to be a trader then trading must be your number one priority and you must be in front of those computers for six and a half hours per day. You CANNOT do this by placing your orders ahead of time and going to work.

WEARING PAJAMAS AND SITTING IN FRONT OF COMPUTERS

You are going to learn about slashing your transaction costs to next to nothing and you cannot do that by turning your orders over to your friendly broker. If you want to be a trader you must learn to trade.

You need to relax and be comfortable. I like to trade in my pajamas. You will trade better if you are relaxed. I drink about 15 cups of coffee every market day and that helps relax me. While you are in front of your computers you can read, write letters or build a website! But you need to be right there when the program starts beeping you that your market position has changed.

Why do you need to be there in front of those computers all the time? Well first of all trading is fun and nothing is going to give you more satisfaction than bringing home the bacon, so to speak, by sitting in front of your computers in your pajamas.

But the real reason you need to be in front of your computers is ORDER EXECUTION.

DAY TRADERS

Let me digress a little and talk about something related to the subject of sitting in front of your computers. I would like to talk about Day Traders. Day Traders we are not; we hold 99% of our positions overnight. I have done a lot of research and I simply do not believe day trading works.

But the kind of day trading that is truly suicidal is the kind of day trading I call “wiggly line day trading”. “Wiggly line day trading” is when you sit in front of a computer, watch the wiggly lines, and try to decide when to pull the trigger.

I have tried this. It is very exciting sometimes. But almost always I have lost money doing this and have returned to my tried and true mechanical trading systems like the one I have been trading for the past decade.

The problem is that when we start looking at all those wiggly lines it becomes like a video game and we want to play the game and have fun. And we end up doing stupid things that lose money. I do not know a single successful day trader.

TRADING SYSTEMS AND ORDER EXECUTION

By using the trading systems that I use and have discussed in previous articles you do not have to think about wiggly lines or what they mean. The computer is going to tell you what to do. So relax, put your feet up on a chair and have another cup of coffee. This is why we trade with trading systems.

But that does not mean you are going to trade brainless. The skill that you are going to learn is not wiggly line theory (translate technical analysis). The skill you are going to learn while wearing your pajamas is following your system and ORDER EXECUTION.

While sitting in front of a computer in your pajamas you are a little like a floor trader. You are going to buy and sell at the market when your system tells you to buy and sell. Your objective is to buy or sell as close to the price the system buys or sells or even improve a little on the price.

TRADING SYSTEM DISCIPLINE

So you are being given a little discretion on the timing of your entry hopefully in order to get the best price possible, BUT YOU MUST TAKE THE TRADE. If you fail to take trades you will fail to make money.

The worst looking trades are usually the most profitable so YOU MUST TAKE THE TRADE and not think about not taking the trade because it looks bad. But just like a good floor trader you must learn how to get in and out at the best price.

Sometimes speed is important and other times delays can help. I have done studies that have shown that if you wait 5 to 10 minutes AFTER a trading signal is hit you can often improve your entry position. Nevertheless that is not always the case.

And you are not going to learn when to jump on a trade at any price and when to take your time placing the order, until you have watched the markets awhile.

SYSTEM TRADING IS A LEARNED SKILL

System trading is the skill you must learn along with the efficient execution of the trading signals the system` gives you. But learning this skill is not rocket science and it is much easier than trying to figure out wiggly line theory. Spend some time with it and you will improve and so will your profits. System trading is a learned skill requiring practice. But it is a skill that can dramatically increase your profits and decrease your exposure and risk in the stock market.